Opinion: This bull market in stocks gets more respect than you think

Everywhere I turn these days it seems I hear yet another market guru or commentator claiming that “this is the most unloved stock bull market ever.”

The data disagree. If you are bullish on the belief that the bull market is unloved, you may want to reconsider.

It’s easy to understand why so many advisers are alleging that this bull market is unloved: Bull markets often end when investors are irrationally exuberant. Key benchmarks have set record after record during this bull market. On Monday, for example, the Dow Jones Industrial Average
DJIA, -1.35%
the S&P 500
SPX, -1.42%
and the Nasdaq Composite
COMP, -1.84%
all closed at record levels — the 26th time this year that all three indexes have done so on the same day and another record.

So those who are predisposed to being bullish have an incentive to make it look as though there is plenty of skepticism out there — a robust Wall of Worry for the bull market to continue climbing.

But that doesn’t mean they’re right, especially since there most of them are basing their claims on mere anecdote. But the little amount of hard data that does exist suggests that the current bull market is not the most unloved ever.

Consider the average recommended equity exposure level among short-term market timing newsletters, as measured by my Hulbert Stock Newsletter Sentiment Index (HSNSI), which I have been calculating on a daily basis for 20 years. Of the bull markets that have occurred since then, the one from October 2002 until October 2007 was far-less loved.

There are a number of ways to show this, but one is by comparing the average of all daily readings during each bull market. During the 2002-07 bull market, for example, the average HSNSI level was 31.5%, compared to 43.1% in the current bull market. (See chart, below.)

For the exact starting and ending dates of each bull market, I relied on the bull-market calendar maintained by Ned Davis Research. According to this, the current bull market didn’t begin in March 2009, but rather in February 2016. If I were to nevertheless assume that the current bull market did begin in March 2009, the average HSNSI reading in the current bull market would be 38.8% — still more than 20% higher than in the 2002-07 bull market.

It’s also revealing to compare current sentiment to where it stood at each of the prior bull market tops. The HSNSI currently stands at 59.9%, for example, which is higher than where it stood at the October 2007 bull market top (46.7%) and the May 2015 top (55.7%). However, it is lower than at the April 2011 top, when it stood at 67.2%.

But perhaps the most revealing comparison is to the widespread skepticism that prevailed in the last quarter of 1999. Human nature being what it is, we tend to rewrite history to make it seem as though everyone on Wall Street was then irrationally exuberant. So chances are you won’t believe me when I say that there was widespread skepticism.

In fact, however, concern about the stock market’s exuberance was then quite widespread. This was compounded by a real fear among many that the world would come to an end on Dec. 31, 1999 (remember Y2K?). Believe it or not, the HSNSI reached its lowest level ever in mid-October 1999, when it fell to minus 81.8%. That meant that the average short-term market timer monitored by my Hulbert Financial Digest was recommending that clients allocate 81.8% of their equity trading portfolios to going short. That’s a whole lot of bearishness.

The closest we’ve come in recent years to that extreme pessimism and despair was immediately following the Brexit vote in the U.K. in June 2016, when the average recommended equity exposure among monitored NASDAQ-oriented stock market timers fell to minus 55.6%.

This discussion underlines how important it is to base any analysis of market sentiment on hard data rather than on selective memories, historical revisionism, and mere anecdote. Without the hard data, no one would ever guess that the bull market in late 1999 was anything but universally and enthusiastically loved, for example.

What about the current market? The HSNSI’s currently level puts it at the 90th percentile of all readings over the last 20 years. That’s high, but by no means at its highest levels ever. So there is some modest support for the notion that sentiment conditions could allow for this bull market lasting even longer than it already has.

At the same time, however, we should never forget that we’re far closer to the extreme bullishness end of the sentiment spectrum than extreme bearishness. Those who constantly repeat the mantra that this is the most unloved bull market ever are lulling us into a false sense of complacency.

For more information, including descriptions of the Hulbert Sentiment Indices, go to The Hulbert Financial Digest or email mark@hulbertratings.com.

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